RBA leaves rates on hold

Jessica Darnbrough

The Reserve Bank has surprised industry pundits by choosing to leave the official cash rate on hold at 4.5 per cent.

Despite widespread speculation that the RBA would tighten monetary policy in a bid to stop inflationary pressure from seeping into the wider economy, a spate of less than impressive housing data forced the board to leave rates unchanged.

House prices dropped 0.2 per cent in August, while building approvals sank 4.7 per cent the same month. Today's Australian Industry Group/Commonwealth Bank Australian performance of services Index slipped 1.9 points in September to 45.6 - the fifth month of contraction, amid a softer retail demand.

RP Data’s national director of research Tim Lawless said the hold on interest rates is likely to short lived, and higher interest rates will further dampen the Australian residential property market.

“Default rates remain low, which suggest that Australian home owners should be able to absorb this rate rise fairly comfortably.  If we see another four or five hikes the downwards pressure on home values is likely to worsen,” Mr Lawless told The Adviser.

“For investors, the prospect of higher interest rates is not all bad.  Higher interest rates are likely to create additional demand from renters in what is already a very tight rental market.  We are already seeing the first signs of higher weekly rents and with more prospective buyers choosing to rent rather than own the upwards pressure on rents is likely to increase yields for investors further.”

Jessica Darnbrough

The Reserve Bank has surprised industry pundits by choosing to leave the official cash rate on hold at 4.5 per cent.

Despite widespread speculation that the RBA would tighten monetary policy in a bid to stop inflationary pressure from seeping into the wider economy, a spate of less than impressive housing data forced the board to leave rates unchanged.

House prices dropped 0.2 per cent in August, while building approvals sank 4.7 per cent the same month. Today's Australian Industry Group/Commonwealth Bank Australian performance of services Index slipped 1.9 points in September to 45.6 - the fifth month of contraction, amid a softer retail demand.

RP Data’s national director of research Tim Lawless said the hold on interest rates is likely to short lived, and higher interest rates will further dampen the Australian residential property market.

“Default rates remain low, which suggest that Australian home owners should be able to absorb this rate rise fairly comfortably.  If we see another four or five hikes the downwards pressure on home values is likely to worsen,” Mr Lawless told The Adviser.

“For investors, the prospect of higher interest rates is not all bad.  Higher interest rates are likely to create additional demand from renters in what is already a very tight rental market.  We are already seeing the first signs of higher weekly rents and with more prospective buyers choosing to rent rather than own the upwards pressure on rents is likely to increase yields for investors further.”

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